Event Details

Date: November 11, 2021
Time: 12:30 pm to 1:30 pm
Location: Online via Zoom
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Title: Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies

Abstract: Homeowners’ insurance provides households financial protection from climate losses. To improve access and affordability, state regulators impose price controls on insurance companies. Using novel data, we construct a new measure of rate-setting frictions for individual states and show that different states exercise varying degrees of price control, which positively correlates with how exposed a state is to climate events. In high friction states, insurers are more restricted in their ability to set rates and adjust rates less frequently and by a lower amount after experiencing climate losses. In part, insurers overcome pricing frictions by cross-subsidizing insurance across states. We show that in response to losses in high friction states, insurers increase rates in low friction states. Over time, rates get disjoint from underlying risk and grow faster in states with low pricing frictions. Our findings have consequences for how climate risk is shared in the economy and for long-term access to insurance.

About This Series: The Robert A. Hedges Research Seminar Series is hosted by the Department of Risk, Insurance, and Healthcare Management in the Fox School of Business. The seminar series comprises invited lectures from academics experts around the world who present research in insurance, risk management, and actuarial science

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